Santa Cruz Mortgage, which closed in October after being caught up in the credit crunch, has filed a bankruptcy petition in federal court in San Jose.
Bankruptcy filings under Chapter 7 are up dramatically in Santa Cruz County for the first quarter, according to the U.S. District Court in San Jose. If the pace continues, the county will experience a 60 percent increase in bankruptcy filings for the year.
California led the nation with a 42 percent increase in bankruptcy filings at an annual pace in the first quarter, according to Jupiter eSources.
The county and the state are seeing a spike in mortgage defaults and foreclosures while lenders are reporting huge losses.
The three types of bankruptcy petitions are: Chapter 7, individual, partnership or corporation; Chapter 13, individuals; Chapter 11, typically a business.
Type 2006 2007 2008 Q1
Chapter 7: 150 315 127
Chapter 13: 121 213 45
Chapter 11: 2 5 1
SOURCE: U.S. District Court in San Jose
San Jose attorney Charles Greene, who represents the firm, said the Chapter 7 petition was filed May 13 by the former president Mark Lawsen.
In 2002, when Lawsen, Steve Clifton and Teresa Driscoll bought the 20-year-old business, Santa Cruz Mortgage claimed to be the largest provider of home loans on the Central Coast. As the housing market boomed, the firm grew to more than 40 employees in 10 offices from Redding to Salinas. By last August, huge numbers of risky loans nationwide were in default, banks reined in credit and many lenders collapsed. A total of 262 lenders have shut down since 2006, according to the Mortgage Implode-O-Meter, a Web site tracking the debacle.
The court papers for Santa Cruz Mortgage list liabilities of $410,000, a figure Greene said is subject to amendment.
There are roughly 90 "unsecured" creditors, which means they have no collateral to take possession of. Most are vendors, such as Alhambra Water, Green Valley Grill, Monterey Bay Office Products, Mission Printers and Pitney Bowes.
The schedule of assets is not yet filed. The deadline to submit that information is June 20, Greene said.
Once the list of assets is filed with the court, it will be up to Soquel attorney John Richardson who has been designated as the trustee.
"My expectation is he'll determine if he can sell those assets to raise money," Greene said.
The assets do not include offices; the mortgage company operated in rented space such as the Live Oak Business Park.
"Myself and my colleagues, we've seen a dramatic increase in number of bankruptcies we're handling," said Greene, a bankruptcy attorney with 34 years experience. "Many are related to the mortgage crisis. In the last six to eight months I've sat in the courtroom here in San Jose, I'm astounded by the sheer volume."
He said lenders frequently ask the judge for a "motion for relief from stay," a type of pleading that if granted allows the lender to proceed with foreclosure.
"The judges are granting those because people have walked away from houses," he said. "There's no opposition. Many people are losing their homes. It's sad."
The number of mortgage defaults in Santa Cruz County has reached 920 compared to 317 a year ago, according to the Santa Cruz Record.
Liese Varenkamp, editor of the Santa Cruz Record, stood on the steps of the County Governmental Building Wednesday to auction foreclosed properties.
"Banks are trying to get these sold," she said.
No one bid on a home at 340 Arthur Road in Watsonville priced at $350,000, so it was sold back to the lender at that price. It had been purchased in 2005 and assessed by the county at more than $676,000.
This year, 325 Santa Cruz County homes have been sold at foreclosure auctions, up from 75 at this time last year.
Varenkamp doesn't expect much improvement in the local housing market this year. The number of mortgage defaults in the county remains steady, she said, and only about 5 percent of property owners are catching up on payments and "curing" the default.